Thousands trapped in unsold homes

Monday 28 July 2003 17:01 BST

THOUSANDS of families who want to move house are 'locked' in properties they cannot sell. Owners are having to cut asking prices by thousands of pounds to tempt buyers, a study suggests. And analysts fear the downturn could signal a full-blown housing market crash. Some believe property prices will continue falling for two to three years.

The cause of the stagnation appears to be a sharp fall in first-time buyers. The total is down by almost 40% on last year, with many priced out of the market by the boom of the last two years.

Some 17 counties or city suburbs - many in former Southern England hot-spots - reported a drop in home values last month, according to property website Hometrack. Another 24 areas said prices had stagnated, with absolutely no change. Just 16 counties saw increases, with many parts of Wales doing well along with South Yorkshire, Cheshire, Cumbria and Devon.

But the South and London are seen as the driving force for the market, and falling prices there are expected to 'ripple out' across the rest of the country.

The survey raises the threat of negative equity for those who bought at the height of the market on mortgages at close to 100% of the asking price. Meanwhile, the number of firsttime buyers is expected to hit a 20-year low of around 400,000 this year.

Just 30,000 homes were bought by this group in June, down by 18,000 on last year.

Young buyers accounted for only 29% of home loans last month compared to 44% in 2002. As a result, there has been a 15% fall in the number of mortgage approvals for home purchases in the April- June period compared to last year.

Hometrack says the increase in the number of properties coming on to the market is 'outpacing the arrival of buyers' at estate agents. It claims the market is 'most difficult' in West Sussex, Surrey, East Sussex, Bedfordshire and Avon - suggesting prices there fell in the last four weeks by 0.2%.

Falls of 0.1% have been registered in parts of Berkshire, Buckinghamshire, Essex, Hertfordshire, Hampshire, Kent and Oxfordshire. Similarly, drops have also been reported in south-west and central London, the City, the West Midlands, particularly Birmingham, and North Lincolnshire. However, the market in Wales and Scotland, previously almost untouched by the South-East, boom, appears to have become vibrant.

The report suggests prices are up 0.3% on last month in Mid and North Wales, with increases of 0.2% registered in South Wales, South Lincolnshire and South Yorkshire.

The Hometrack data says the average period a property is on the market before a sale has risen from 2.8 weeks at the height of the boom in May last year to five weeks now.

The website's housing economist John Wriglesworth said: 'In terms of price changes, there has been nothing happening since December and the market remains as dull as ditchwater. Because of the stagnation in house price movements, we have reviewed our forecast for rises for 2003 down from 4% to 3%.'

Jonathan Loynes, of Capital Economics, said: 'The underlying reason for strong house price rises in terms of strong demand has been taken away from under the market. The market could be compared to a cartoon character that continues running after falling off a cliff.'

The firm of analysts believes prices will fall by around 8% next year and in 2005.